Attorney disqualification is improper remedy for failure to produce documents and respond to subpoena

The Second District, Division Seven, has ruled that while an attorney who fails to produce documents and/or produce a privilege log may be subject to sanctions, or perhaps even referral to the State Bar, a trial court erred when it instead disqualified said counsel from representing one of the parties. (Sunholm v. Hollywood Press Association (February 27, 2024) B324842.)  This is true even though the document withheld may have contained the other party's privileged information and, further, the to-be disqualified counsel was less than forthright about whether he currently possessed privileged material.

In Sundholdm privileged documents were accidentally filed and served upon counsel for plaintiff, who had sued the Holywood Foreign Press Association after he was expelled.  HFPA mistakenly attached a draft copy of its by-laws to its complaint notwithstanding that these by-laws were marked as attorney-client privileged material.  HFPA made an ex parte application to strike these by-laws from the record, which request was granted.  An amended complaint was then filed with the final version of the by-laws attached, as these did not contain any privileged material.  

Counsel Quinto of One LLP, attorney for plaintiff Sundholm, was then the subject of a motion to disqualify brought by the HFPA after it was alleged that he had, inter alia, 1) kept a copy of the privileged material, and 2) failed to respond to a deposition subpoena to produce documents including the privileged material.  This motion to disqualify of HFPA was made alongside its motion to compel production of the document which Quinto possessed and coyly said might be privileged.  Sundholm then sought to dismiss the remainder of his complaint against HFPA to avoid either motion being granted.  

Wendy W. Y. Chang, Judge presiding of the Superior Court of Los Angeles County, found the court lacked jurisdiction to consider the motion to compel due to the dismissal of the remainder of the complaint. The trial court nonetheless held it could rule upon the motion to disqualify and granted said motion.

The appellate court overturned the trial court’s grant of the motion to disqualify, not because it endorsed Quinto’s conduct, but because such was not the proper remedy for Quinto’s action.  In an opinion written by Justice Feuer, the court held:

We agree with the trial court that Quinto improperly refused to produce documents in response to a subpoena from HFPA seeking HFPA documents in Quinto’s possession that were privileged or to provide a privilege log. But disqualification of an attorney affects a party’s right to counsel of choice, and it should not be used to punish an attorney for improper conduct. Quinto’s conduct could have been addressed by an award of sanctions or, if appropriate, reporting the conduct to the State Bar of California. The drastic remedy of disqualification of counsel is appropriate only where the attorney improperly or inadvertently received information protected by the opposing party’s attorney-client privilege, the information is material to the proceeding, and its use would prejudice the opposing party in the proceeding. Here, there was no showing the HFPA documents would prejudice HFPA in the proceeding. We reverse. (Id., p. 2.)

Key to the court’s finding the trial court erred was the drastic nature of the remedy of disqualification of counsel.  The Second District explained disqualification is appropriate only where the following test is met: 1) opposing counsel improperly or inadvertently receives information protected by the opposing party’s attorney-client privilege, 2) the information is material to the proceeding itself, and 3) use of such by opposing party would result in actual prejudice of party seeking disqualification.  HFPA, however, could not establish it suffered prejudice from the retention of the privileged material given the suit against it was dismissed.

Analysis: mistakes — whether inadvertent or intentional — were made by counsel for both parties

Counsel for HFPA — Robert Ellison— admitted that a draft copy of the by-laws which included attorney-client privileged information was filed with the Court and served on opposing counsel.  Though swiftly corrected, this was a potential breach of the duty of due care owed to the client, necessitating the ex parte application to strike this matter.

At the same time, counsel for Quinto failed to either produce the privileged document or produce a privilege log detailing what document was being withheld.

Unresolved ethical issues, including “back ups” of information which should be "returned"

The Court of Appeal found that because HFPA could not establish prejudice from the retention of the privileged information, it did not need to consider whether Quinto acted unethically.  However, as the Court of Appeal explained at footnote six, the scenario in Sundholm implicates the ethical duty of counsel to disclose and possibly return inadvertently-disclosed privileged material:   

              

Pursuant to State Fund, supra, 70 Cal.App.4th at pages 656 to 657, “When a lawyer who receives materials that obviously appear to be subject to an attorney-client privilege or otherwise clearly appear to be confidential and privileged and where it is reasonably apparent that the materials were provided or made available through inadvertence, the lawyer receiving such materials should refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged. The parties may then proceed to resolve the situation by agreement or may resort to the court for guidance with the benefit of protective orders and other judicial intervention as may be justified. We do, however, hold that whenever a lawyer ascertains that he or she may have privileged attorney-client material that was inadvertently provided by another, that lawyer must notify the party entitled to the privilege of that fact.” (See Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807, 817-818 [adopting the State Fund holding and extending it to material protected by the work product doctrine].) 

The opinion therefore does not provide sufficient guidance to say with certainty whether or not Quinto acted unethically, instead merely hinting that he may have.  The appellate court also did not discuss the issue of what is to occur after a party notifies the other party it has inadvertently received privileged material.  

In the analog era, of course, the answer was often that the party “returns” the privileged material to the party who inadvertently disclosed such. As California Rules of Professional Responsibility, Rule 4.4, comment [1] states:

[1] If a lawyer determines this rule applies to a transmitted writing,* the lawyer should return the writing* to the sender, seek to reach agreement with the sender regarding the disposition of the writing,* or seek guidance from a tribunal.* (See Rico v. Mitsubishi (2007) 42 Cal.4th 907. . . .

But what does this mean in the digital era?  

Even if a document is “returned” to its sender, it most likely has already been scanned.  Moreover, even if it has ostensibly been “deleted,” a copy of the privileged material may be saved on a local or remote backup server.

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Post-trial civil procedure - Defense May Have to Pay Cost of Proof Sanctions for Failing to Stipulate to Medical Records as "Business Records" (Vargas v. Gallizzi)

 

Post-trial civil procedure - defense failure to stipulate to the authenticity of medical records as "business records" entitles plaintiffs to claim the cost of having to prove their admissibility

Division Seven of the Second Appellate District of California has upheld and reversed post-trial orders by the Hon. Graciela L. Freixes of the Los Angeles County Superior Court. (Vargas v. Gallizzi (October 13, 2023) B317540.)  Following a prior appellate opinion remanding for a new trial to consider both loss of use and future non-economic damages, plaintiffs prevailed in the second trial and the parties wrangled over who should pay what after trial.  Justice Perluss and his colleagues on the Second District panel affirmed the trial court’s award of costs to the defense based on a successful pre-trial offer to compromise, but reversed the trial court's denial of any of the requested "cost of proof" sanctions to plaintiffs, finding they were entitled to claim the reasonable cost of having to prove matters unreasonably denied by the defense.  The final result is that the defense will owe the plaintiffs $15,125 in damages, plus a to-be-determined amount relating to attorneys fees and costs, while the plaintiffs will owe the defense its allowable costs of suit, or $28,547.66, including $12,000 for a particular expert’s fees for testifying.

What are sometimes called "cost of proof" sanctions may be awarded for the pre-trial costs of proving a matter the other party will not admit 

Vargas explained California's procedure for claiming attorney fees and costs related to factual matters the other party will not admit:

During pretrial discovery a party may serve a written request that another party “admit the genuineness of specified documents, or the truth of specified matters of fact, opinion relating to fact, or application of law to fact.” (§ 2033.010.) Such requests “‘are primarily aimed at setting at rest a triable issue so that it will not have to be tried. Thus, such requests, in a most definite manner, are aimed at expediting the trial. For this reason, the fact that the request is for the admission of a controversial matter, or one involving complex facts, or calls for an opinion, is of no moment. If the litigant is able to make the admission, the time for making it is during discovery procedures, and not at the trial.’” (Id., p. 9; emphasis added but citation omitted.)

Counsel for plaintiffs made multiple attempts to have defense counsel stipulate to the admissibility of medical records, to no avail.  Indeed, defense counsel refused to stipulate that such records were "business records" under Evidence Code section 1271 and therefore twice denied requests for admissions to this effect.  The trial court ultimately settled this contested issue pre-trial by ruling most of the records were in fact "business records:" 

. . . [T]he court heard argument regarding the parties’ motions in limine. . . [and] it appears the admissibility of medical records was argued because the minute order for July 30, 2021 states, “The Court rules that any sealed subpoena records received will be considered as business records. The admissibility of said records is deferred to the time of trial.” 

 

The issue was revisited during trial when Vargas and Garcia’s counsel indicated he would use some of the medical records to refresh Vargas’s recollection during her testimony. Gallizzi’s counsel objected that Vargas could not authenticate the documents and the records contained hearsay. The court responded, “I’ve deemed them not hearsay with regards to authentication and foundation because they were provided . . . as part of the subpoenaed records.” Ultimately the medical records proffered by Garcia and Vargas were admitted into evidence at trial except for approximately 10 pages the court ruled contained hearsay within hearsay. (Id., pp. 5-6.)

After trial plaintiffs brought a motion requesting a staggering $350,000 in attorney fees and costs related to defendant's supposedly “unreasonable” denial of the requests for admissions.  The trial court denied this motion, explaining, inter alia, that the issue of the authenticity of the medical records had been decided before trial and there was therefore no need to expend attorney effort to "prove" such during the actual trial.

The Second District reversed, remanding the matter for reconsideration as to the amount of the attorney fees and costs to be awarded related to the denial of the requests for admissions.  As the appellate court explained, Code of Civil Procedure section 2033.420 does not limit its scope to what is proven "at trial," providing a post-trial award to the party who "thereafter proves the genuineness of that document or the truth of that matter.”  Consequently, a post-trial award may include attorney fees and costs incurred "pre-trial" as part of the "proof" referenced in the statute, including, as was the case in Vargas, efforts in bringing pre-trial motions.

The Vargas court explained that plaintiffs had "proven" the records were business records during the pre-trial hearing and, more to the point, the denial by the defense was not “reasonable:"

. . . [A] defendant ‘cannot be forced to admit [a] fact prior to trial despite its obvious truth. [Citation.]’ [Citation.] But the failure to do so comes with consequences, exposure to a costs of proof award.”  Gallizzi had no reasonably held good faith belief she could prevail on the merits of the business records issue. Her denial rested solely on the potential for opposing counsel’s procedural error. Accordingly, Vargas and Garcia were entitled to recover the reasonable expenses incurred in proving the medical records were business records. (Id., p. 15.)

However, the plaintiffs were not permitted to claim the cost of proving causation at trial

Predictably, counsel also did not permit defendant to admit that she caused "some injury" to either plaintiff.   However, during opening statements defense counsel stated "I believe these ladies were injured."  Nonetheless, plantiffs’ post-trial motion asked for attorney fees and costs related to having prove causation at trial.  The appellate court found the trial court and properly denied this request for “cost of proof” sanctions as the plaintiffs would have had to have proved the amount and severity of their damages no matter what the defenses admitted.

The appellate court also affirmed the award of costs to the defendant

The appellate court also affirmed, with no modifications, the substantial award of costs to the defense.  Plaintiffs rejected an offer to compromise from the defendant made pursuant to Code of Civil Procedure section 998 and apparently "beat" this offer as the verdict at the second trial was less than this offer.

Plaintiffs quibbled with these costs, arguing the fact the defense expert designation stated the cost of testimony would be $6,000 for up to four hours indicated the claimed $12,000 should be reduced; however, as the court noted, the expert at issue testified over two separate days and thus charged a $6,000 minimum each day.  The appellate court also rejected the claim the trial court abused its discretion in awarding the defense the cost of real-time court reporter transcription, explaining "[plaintiffs] have not cited any authority for the proposition that real-time transcription fees are not allowable when deemed appropriate by the trial court." (Id., p. 19.)

Tips for practitioners

This suit illustrates the effect of post-trial motions for sanctions and/or costs of suit in California, including that:

• In addition to any actual damages awarded, parties may recover from the other costs and/or sanctions and each party may therefore have a resulting award against the other; and,
• The result is that the "net" award may be to the defendant, and not the plaintiff, depending on amounts awarded by way of post-trial motion.  

This second point is illustrated in Vargas by the judgment for damages of$15,125 to plaintiffs versus the costs awarded to the defense of $28,547.66.  If the "cost of proof" sanctions are less than this amount, it appears likely the plaintiffs will owe the defendant money following this second trial.  

Practitioners should therefore treat requests for admissions, particularly those related to the introduction of evidence at trial, very seriously.  Matters that are routinely admitted, such as the authenticity and admissibility of documents, should be admitted if it would be unreasonable to deny them.  At the same time, counsel whose clients reject section 998 offers to compromise should be aware of the increasing cost of litigation, including the charges of medical experts, and should take a "ballpark" estimation of these costs, including the cost of any and all experts called by opposing parties, into account when considering whether to reject or accept a statutory offer.

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Short take-away: Agent's admissions are not "deemed admitted" by principal (Inzunza v. Naranja)

 

Short take-away - it was error to preclude the principal from contesting factual matters deemed admitted as to the agent

The Second Appellate District, Division Four, has held that factual matters deemed admitted as to an agent do not preclude the principal from contesting liability. (Inzunza v Naranja (August 21, 2023) B318956.)  Naranja, the driver of the vehicle involved in a fatal collision with Inzunza, had factual matters "deemed admitted" against him because he failed to respond to requests that he, for example, admit he was entirely at fault and the driver of the other vehicle was not comparatively negligent.  Inzuna's heirs moved by way of a motion in limine to prohibit any party from introducing any evidence at trial that was contrary to these party admissions, effectively precluding the principal, employer CRGTS, from fully defending the action. In an opinion written by Justice Currey, the Second District held with clarity that admissions pertaining to an agent did not preclude the principal from contesting liability:

We begin with the plain language of the statute. . . section 2033.410 provides, in relevant part, that any matter deemed admitted “is conclusively established against the party making the admission” and is “binding only on that party.” (§ 2033.410, subds. (a) and (b), italics added.) It is undisputed that Inzunza failed to respond to plaintiffs’ requests for admission propounded on him, and the trial court correctly deemed the matters in the requests admitted by Inzunza. It is also undisputed, however, that CRGTS timely responded to plaintiffs’ requests for admission, and denied some of the same requests as those deemed admitted by Inzunza. . . .  The basis of plaintiffs’ action against CRGTS is vicarious liability arising from the acts of Inzunza. Vicarious liability of an employer is wholly derivative of the employee’s fault. If the employee is not at fault, the employer is not vicariously liable. [Citation.]  Thus, by precluding CRGTS from introducing evidence contesting liability, the trial court saddled it with Inzunza’s deemed admissions—making his admissions of fault binding not only on Inzunza, but also CRGTS, in violation of section 2033.410. (Id., pp. 7-8.)

Inzunza noted that while an agent's actions bind the principal, the agent's actions in failing to respond to discovery were not within the "course and scope" of employment.  The appellate court also noted that CACI No. 210 provided guidance in this area, providing in brackets that the jury, where appropriate, should be instructed, ". . . these matters must be considered true only as they apply to the party who admitted they were true.” Moreover, the directions for CACI 210 provide plainly that “The bracketed phrase should be given if there are multiple parties.” 

 

The jury should be told the agent's admissions do not bind the principal

The Second District expressly instructed the Superior Court that upon retrial the jury should be told the employee's admissions do not bind his employer.  Therefore, the text quoted above, which the jury was not given during the first trial, must be read to the jurors.

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